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Dennis Jones is a Jamaican-born international economist, who has lived most of the time in the UK and USA, and latterly in Guinea, west Africa. He moved back to the Caribbean in 2007. This blog contains his observations on life on this small eastern Caribbean island, as well as views on life and issues on a broader landscape, especially the Caribbeanand Africa.*NEW!!! LISTEN TO BLOG POSTS FEATURE ADDED!!!*

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Friday, October 31, 2008

If you have never watched John Carpenter's film "Halloween"--described as how a "psychotic murderer, institutionalized since childhood, escapes on a mindless rampage while his doctor chases him through the streets"--now would be a good time. Just when you thought all was safe, there would be another shocking surprise, and that feeling of being choked or suffocation would return.

That's how this month has been in the world international finance. It was so bad that every day was a drama until the end; the New York Stock Exchange especially saved all the fireworks for the last hour, or worse, the last 15 minutes. Before that, heart strings were pulled this way and that, up large amounts, down large amounts. Those involved had no idea where was up. Me, from my computer trading platform? I was stunned at the ranges of movements in prices, as I have written about recently. As they say in some films, "It's dangerous out there." My head has not ached but nights have been interesting. So much happened during trading in Asia and Europe that it became very risky to have any position open overnight; that's one reason why a lot of selling at the day's end was seen on Wall Street. The crazy weather in Barbados, with those wild thunderstorms and heavy rain, woke me up several times and given my interest, I checked goings on in Asia or Europe. Have you ever been in an abattoir?It's gory and really unpleasant. That's often how I viewed things. I checked my little one; tried to go back to sleep myself; adopted a tight foetal position, and thought sweet thoughts about the day to come.

The chief currency strategist of the company with whom I trade wrote this weekend: "Good riddance October. A month that began with much hope as the US government pursued the housing/financial sector rescue package ended with unprecedented carnage in nearly every asset class, leaving few investors unscathed. Hedge fund and portfolio withdrawals forced asset sales, driving down shares worldwide and triggering margin calls, which prompted yet further selling. In currencies, this sent the JPY-related currency pairs (so-called "carry trades") plunging and the US dollar soaring. Additional government steps late in the month (Fed extension of USD swap lines to Brazil, Mexico, Singapore and South Korea; interest rate cuts from the Fed, China, Norway, and Japan; and the start of the Fed's commercial paper program, to name just a few) triggered sharp rebounds in shares and carry trades, but much of the damage remained. The economic outlook deteriorated still further as US 3Q GDP printed negative (and the details of the report were even worse than the headline reading), US and European confidence gauges fell to new lows (for many, all-time lows). Credit conditions continued to improve, but remain above pre-Lehman levels, as is overall market volatility. With financial market conditions still at stressed-out levels and economic outlooks eroding rapidly, it would be premature to suggest that further bouts of panic won't still materialize.However, the stabilization seen in this final week of October does favor a more prolonged period of consolidation as markets get their feet back under them."

I could not put it better myself. I am absolutely thrilled that All Hallows Eve is here--when the dark spirits roam abroad--and the nightmare that was October is gone. I do not work in a firm, but on my own. That can be good, because you don't get herd-like panic; but it can be bad because you don't sense herd-like panic. I surround myself with calming things: Bloomberg TV commentary has so many views as to ensure that all is balanced; watching tennis or football in between times as its broadcast; having my 5 year old take over my office and play PBS Kids or Disney on my computer is more than a distraction.

I asked a friend who works in London to give me a sense of the sentiment in one of the world's major banks. She was succinct: "Numb. So much up and down, you stop feeling. I stopped watching and the credit guys were on auto pilot, monitoring margin calls!" If you do not understand about margin calls, let me explain. You often trade with large amounts of money based on being able to put down the equivalent of a deposit--the margin. If your margin falls below a certain level relative to the trades you are doing, your trades are either forced to close, meaning loss of all or part of the position, or you are required to put up more margin money. There's been a lot of this because the price declines have been so savage. But, to raise the money means selling something, like some existing stock holdings, turning the screws a little tighter.

If you have never lived in a country with hyper inflation you may find it hard to understand what dramatic price movements are, but this time prices falling. The panic that comes with the plunging stock markets led to billions of dollars being withdrawn. Bloomberg reported that "Investors withdrew a record US$70.7 billion from U.S. stock mutual funds in October... after [the] previous high of US$56 billion in September" (see Bloomberg report). The fear of stock markets that comes from periods like this often takes a long time to overcome, usually four to five years. Cash is king again.

I've learned a lot in the year since I started trading. But I learned so much this month. I have my eyes set on an overall target, but I now also have my eye on something very simple. All is never lost. There are many horrible bad days, but even these have great bright spots. Huge disappointments are there: the many trades that were sent for a loss by a sharp movement in prices in a few minutes, of the kind you would expect to see in a whole day, and then go back to following the direction you wanted and denying you a potentially large gain. My trading strategy guru had to vent this week after several such experiences. I vented too, internally.

But, this month is over. The ghouls will go back into their caves. I and others in the market will hope that a fresh start that comes with a new month will allow for a breath of clean air. I will see where things are at year's end, but I wont forget October.

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